This paper examines whether inaccurate going-concern opinions negatively affect the audit office's reputation. Assuming that clients perceive the incidence of going-concern opinion errors as a systematic audit quality concern within the entire audit office, we expect these inaccuracies to impact the audit office market share and dismissal rate. We find that going-concern opinion inaccuracy is negatively associated with the audit office market share and is positively associated with the audit office dismissal rate. Furthermore, we find that the decline in market share and the increase in dismissal rate are primarily associated with type I errors. Additional analyses reveal that the negative consequence of going-concern opinion inaccuracy is lower for Big 4 audit offices. Lastly, we find that the decrease in the audit office market share is explained by the distressed clients' reactions to type I errors and audit offices' lack of ability to attract new clients.
Research Article| March 27 2020
Consequences of Going-Concern Opinion Inaccuracy at the Audit Office Level
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Qiao Xu, Rachana Kalelkar; Consequences of Going-Concern Opinion Inaccuracy at the Audit Office Level. AUDITING: A Journal of Practice doi: https://doi.org/10.2308/ajpt-18-050
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